QUESTION SET II:

• I = An – P
where
I = Total Interest paid
A = Monthly payment
n = Duration of loan in months
P = Principal
• I = U (i)
t t-1

where
I = Interest for month t
t

U = Outstanding principal at the end of month

t-1
t – 1 (the previous month)
i = Periodic interest rate for one month (r/12)

• U =U +I –A
t t-1 t

where
U = Outstanding principal at the end of month t
t

U = Outstanding principal at the end of month

t-1
t – 1 (the previous month)
I = Interest for month t
t

A = Monthly payment
Example 16-19: How much interest would be charged on a line of credit that charges a
monthly interest rate of 1.1% if the average daily balance for the month was $55,100?

Solution: Using Eq. (16-18) to calculate the interest for the month we get the following:

I= $55,100.00(0.011) = $606.10